LBTT Update – one anniversary you do not want to forget!
As we all know, one of the worst things we can do is forget the anniversary! By this of course we mean the anniversary of your commercial lease.
1st April 2018 marks the third anniversary of the introduction of Land and Buildings Transaction Tax (â€œLBTTâ€) in Scotland (a new regime which largely replaced Stamp Duty Land Tax north of the border). This is a significant anniversary for commercial tenants as the introduction of the LBTT regime imposed a duty on tenants to submit further returns to Revenue Scotland following an initial return. These further returns must be submitted for a non-residential lease (1) where the lease is assigned; (2) when the lease ends; or (3) importantly, on every third anniversary of the lease.
A commercial lease can often be subject to change; with many commercial leases including an option to extend or including provision for rent reviews. Additionally, if a commercial lease is not properly brought to an end, then they can continue on an annual basis (by virtue of whatâ€™s known as tacit relocation). These examples, amongst many other potential variables, can change the tax position of a commercial lease throughout its term. The introduction of a three-yearly return gives the Revenue an opportunity to monitor such changes and to ingather any LBTT due (or to allow tenants to reclaim any overpaid LBTT).
The return must be submitted (and any tax due, paid) within 30 days of the date upon which the Return falls due. As noted, the Return falls due on the third anniversary of the â€˜Relevant Dateâ€™ of the original tax return (which is usually, although not always, the start date of the lease). The return must calculate the amount of the tax due at the review date (if any) – any tax due is calculated using the rates and bands that were in force when the first Return was made.
The responsibility for remembering the anniversary and submitting these three yearly return rests with the tenants (as does the payment of any tax due). There can be significant penalties for failing to submit a return within the stipulated timescales. Penalties include Â£100 for failure to submit a Return within 30 days; a daily penalty of Â£10 for up to 90 days for failure to submit a return after a further 3 months; a payment of Â£300 or 5% of the tax liability (whichever is the greater) for failure to submit a return 6 months after the penalty date; and lastly, a further payment of Â£300 or 5% of any tax liability (whichever is the greater) for failure to submit a return within 12 months. Forget an angry spouse; this is one anniversary you do not want to forget!
Helpfully, at least initially, Revenue Scotland will provide tenants with reminders but tenants cannot rely upon this process continuing and it is therefore important that tenants ensure that they have suitable administrative procedures in place to diarise the third anniversary of any commercial lease, and that they take steps to submit any necessary Return within the stipulated timescale.
If you receive a reminder from Revenue Scotland or if you have become a tenant in a commercial lease over the last three years and wish to discuss the LBTT position please contact our Corra Irwin or Pamela McGowan.